Forex Trading Basics

Exactly What Is The Forex Market?

Here’s a brief description and background on the Forex market, since we get asked practically every day what it is.  We know you’ll find this to be helpful in understanding the Forex market much better.


A Brief Introduction

The Forex, which is an acronym meaning “Foreign Exchange,” is also referred to as the Currency market, or the FX market. The Forex market exists wherever one currency is traded for another, and was established between 1971 and 1973 when various central banks throughout the globe introduced a free exchange rate regime, letting the individual currencies fluctuate driven by the market.

Today, and being currencies’ primary market,  the Forex market is by far  the biggest and most liquid financial market in the world, and includes trading between large banks, central banks, currency speculators, financial markets, governments, individuals like you, and other institutions.

The Forex trades over the counter (OTC), and thus does not have a physical location, and trades are executed through telecommunications and trading platforms.

 

The Value Of The Forex Contract

One standard contract (also known as one standard lot) in the Forex market is valued at $100,000 US dollars (USD).

A mini Forex contract (also known as one mini lot) in the Forex market is 1/10 the value of a standard contract, and is valued at $10,000 US dollars (USD).

Many  brokerage houses will also offer a micro-mini contract (also known as one micro-mini lot) in the Forex market, where one micro-mini lot is 1/10th of a of a mini Forex contract, and is valued at $1000 US dollars (USD).

When you trade, you can use the appropriate contract type for the size of your trading account.

To choose the correct contract type, it will help you to know the value of 1 pip in each contract size. The value of 1 pip for a standard contract (1.00 lots) is $10.00. For the mini contract (0.10 lots) the value is $1.00, and for the micro-mini contract (0.01 lots) the value is $0.10.

Using one standard contract as an example, with leverage available at most Forex brokerage houses, you don’t actually need $100,000 in your trading account to buy or sell one contract.

With a leverage of only 100:1, you can buy or sell one standard contract with only $1000 in your account. We absolutely do not recommend this trade if in reality you only had $1,000 in your trading account.

You are learning the Forex Profit$$ Mentoring Program for a lifetime of trading, not so that you can go out in a blaze of glory.

 

What Is A Forex Contract

A Forex contract is the result of a simultaneous purchase of one currency and the sale of another.

A contract is always done in pairs, and is basically buying and selling money in the same time. The Forex contract is also very special as it has no centralized trade location and trades are done around the clock. All contracts are bought by telephone and over computer networks between traders in different parts of the world.

The primary market for currencies is the “interbank market” where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates.

How Much Does It Cost To Trade The Forex

The Forex offers commission free trading.

So you may ask yourself, does that mean that I have no costs associated with trading the Forex?

Not exactly, the Forex just comes through different cost doors. For example, your cost for doing business in the Forex market is called a spread, and the spread is the difference between the bid and ask price of the currency pair that you are trading. The broker collects the difference between the bid and ask price.

Let’s use an example.

The trader, using the ‘FPMP Strategies’ sees a long buy setup on the GBP/AUD. The bid price is 2.0829 and the ask price is 2.0832.  The trader places the order and buys one contract (one lot) of the GBP at 1.0832. If the trader had been selling the GBP, the price would have been 2.0829.  The difference (the spread) between the buy and sell price is 3 Pips, and these 3 Pips would be the broker’s commission on one GBP/AUD contract.

On a Standard account the broker’s commission would be $30.00, and on a Mini account, the broker’s commission would be $3.00. More contracts would be a multiple of the 3 Pips. The spread will vary from currency pair to currency pair, and from broker to broker, with the bottom line being:  the tighter the spread, the better it is for the trader.

Another cost door through which the Forex trader may find himself/herself walking is the Rollover door.

The “Rollover” (or interest payment) is the process involved in maintaining an open position past the regular settlement time of 5 p.m. EST.  The cost of this process is measured by the interest rates of the two currencies in the currency pair you are trading

If the base (primary) currency has a higher interest rate than the secondary currency, you will receive interest.  However, if the base currency has a lower interest rate than the secondary currency, you will pay interest. A

lthough the Rollover is a relatively small amount of money, closing your positions before 5 p.m. EST will eliminate any possibility of either earning or having to pay this interest.

 

Please Remember: Trading the Forex market is not without risk and as a trader/investor you must accept the possibility of being incorrect in your predictions (trades) of the market.  The opportunity to profit from trading the Forex can be very substantial, however keep in mind that the risk of trading can also be very substantial.  And please remember, you must use stop losses (ISL’s) – as you already know by now this will help limit your losses to your own personal comfort level (and to what is taught in this program).

“Why trade the Forex market?”

There are a lot of reasons why, here’s just a few of them:

• There is NO market research required.

• Forex margin requirements offer more leverage than stocks or futures – up to 200 times the value of your account. Of course keep in mind that increased leverage also increases your risk

•  You can profit no matter which way the market moves, up or down.  Bad market news can be real good news to you.

•  Great potential for daily cash flow.

•  Tremendous leverage, liquidity and volatility for maximum profit potential.

•  There is NO Up tick rule.